Preview Of The Busy Week Ahead: Payrolls, Trade, And Powell

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It's a busy week for economic data, with Friday's payrolls average hourly earnings report on Friday taking the macroeconomic spotlight, in addition to ISM Mfg and Services reports, Trade data, construction spending and March auto sales data earlier in the week.

The minutes of the March FOMC meeting will be released on Wednesday. In addition, there are several scheduled speaking engagements by Fed officials this week, including a speech by Chairman Powell on Friday.

Wall Street consensus expects nonfarm payrolls to increase by 195k in March, a deceleration from the better-than-expected 313k in February. BofA notes that while the inclement weather in March may not have lowered the trend in job growth, it likely lowered working hours, thereby boosting wage growth to 0.3% mom (2.8% yoy). We wonder if markets will fall for the same ruse as in February, when an identical accounting glitch sparked fears of surging inflation and unleashed the February "volocaust."

As Barclays reminds us, the February Employment report was released on March 9, five weeks after the January Employment report was released on February 2. "This may have accounted for some of the outsized performance in February, whereas the march employment report is released only four weeks after the February report." In addition, Barclays thinks concerns about anti-trade policies and regulatory concerns in the tech sector may subdue hiring relative to February.

The manufacturing and non-manufacturing ISM indices will also be released; consensus expects a print of 60 for mfg and 59 for non-mfg, consistent with continued growth. The risk is sharply to the downside in the aftermath of recent trade tensions.

In light of the recently launched trade war, the February Trade balance reported on Thursday will be especially closely watched for any sharp deterioration in the US trade deficit.

Here is Goldman's take on key US events in the coming week:

The key economic releases this week are ISM manufacturing on Monday, ISM non-manufacturing on Wednesday, and the employment report on Friday. The minutes of the March FOMC meeting will be released on Wednesday. In addition, there are several scheduled speaking engagements by Fed officials this week, including a speech by Chairman Powell on Friday.

Monday, April 2

09:45 AM Markit Flash US manufacturing PMI, March final (consensus 55.7, last 55.7)

10:00 AM ISM manufacturing, March (GS 59.0, consensus 60.0, last 60.8): We estimate the ISM manufacturing index fell 1.8pt to 59.0 in the March report. Regional manufacturing surveys deteriorated on net in March, and much of the weakness was pronounced in mid-to-late month surveys. Our manufacturing survey tracker—which is scaled to the ISM index—declined 1.6pt to 58.4.

10:00 AM Construction spending, February (GS +0.6%, consensus +0.4%, last flat): We estimate construction spending increased 0.6% in February, following an unchanged reading in January that reflected firmer public nonresidential and private residential construction primarily offset by weaker private nonresidential and public residential construction.

06:00 PM Minneapolis Fed President Kashkari (FOMC non-voter) speaks: Minneapolis Fed President Neel Kashkari will hold a town hall on monetary policy and the economy with university students in Duluth, Minnesota. Audience Q&A is expected.

Tuesday, April 3

09:30 AM Minneapolis Fed President Kashkari (FOMC non-voter) speaks: Minneapolis Fed President Neel Kashkari will take part in a moderated Q&A session at the Regional Economic Indicators Forum in Duluth, Minnesota. Audience Q&A is expected.

09:45 AM St. Louis Fed President Bullard (FOMC non-voter) speaks: St. Louis Federal Reserve President James Bullard will give a speech at an event jointly hosted by the Arkansas Bankers Association and the Arkansas State Bank Department in Little Rock. Audience Q&A is expected.

10:00 AM ISM non-manufacturing, March (GS 58.0, consensus 59.0, last 59.5): We expect the ISM non-manufacturing survey to decrease 1.5pt to 58.0 in the March report. Regional non-manufacturing surveys all moved lower in March, led by declines in the New York Fed and Dallas Fed surveys. Overall, our nonmanufacturing survey tracker fell by 1.2pt to 57.1 in March.

02:00 PM FOMC minutes from the March 20-21 meeting: The FOMC raised the funds rate target range by 25bp at its March meeting and published a mixed but generally upbeat post-meeting statement. In the Summary of Economic Projections (SEP), the median dots continued to show three hikes in 2018 but now show 8 cumulative hikes in 2018-2020. In the minutes, we will look for an update of the Committee’s inflation outlook and views about the importance of the modest core inflation overshoot now projected in the SEP. Investors may also pay close attention to any discussion of potential changes to the post-meeting press conference format—in particular a possible increase in their frequency (though we agree with Chairman Powell that any such change would not have near-term policy implications).

Thursday, April 5

08:30 AM Initial jobless claims, week ended March 31 (GS 220k, last 215k); Continuing jobless claims, week ended March 24 (consensus 1,870k, last 1,871k); we estimate initial jobless claims moved up 5k in the week ending March 31 after claims fell to a new 49-year low. We note that the level of claims looks somewhat depressed and we see scope for a rebound. Continuing claims – the number of persons receiving benefits through standard programs – rebounded from very low levels in the prior week.

08:30 AM Trade balance, February (GS -$56.7bn, consensus -$56.5bn, last -$56.6bn): We estimate the trade deficit increased further in February. The Advance Economic Indicators report showed an unexpected increase in the goods trade deficit, likely reflecting the later than usual timing of Chinese New Year that also appeared to boost West Coast inbound container traffic in the month.

Friday, April 6

8:30 AM Nonfarm payroll employment, March (GS +200k, consensus +189k, last +313k); Private payroll employment, March (GS +200k, consensus +195k, last +287k); Average hourly earnings (mom), March (GS +0.3%, consensus +0.3%, last +0.15%); Average hourly earnings (yoy), March (GS +2.7%, consensus +2.7%, last +2.6%); Unemployment rate, March (GS 4.0%, consensus 4.0%, last 4.1%): We estimate nonfarm payrolls increased 200k in March following a 313k gain in February. Our forecast reflects strong labor market fundamentals partially offset by a sizeable drag from weather, as snowfall was above-average in the first half of March. If realized, our forecast would represent a significant acceleration in underlying job growth from the 180k trend in the second half of 2017.

We estimate the unemployment rate declined by one tenth to 4.0% (from 4.14% previously), as continuing claims resumed their downtrend between the survey reference periods. Additionally, surges in labor force participation as large as that seen last month (+0.3pp) are typically associated with a subsequent decline in the jobless rate. Finally, we expect average hourly earnings to increase 0.3% month over month and 2.7% year over year, reflecting somewhat favorable calendar effects.

01:30 PM Fed Chairman Powell (FOMC voter) speaks: Federal Reserve Chairman Powell will give a speech on the economic outlook at an event hosted by the Economic Club of Chicago. Questions from a moderator are expected.